Tariff Policy - Presidential reform

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The tepid approach to trade liberalization, or a low-tariff policy,
continued into the new century, but change was afoot. Congress still
blocked major downward revisions of the tariff because politics dictated
that reducing duties also reduced votes. Yet as the national Progressive
movement took hold in the early 1900s, market-seeking trade associations
such as the National Association of Manufacturers and the U.S. Chamber of
Commerce lobbied vigorously for a tariff policy conducive to export
expansion. Their case was strong, as imports of manufactured goods
continued their steady decline—from 14 percent of consumption of
industrial products in 1869 to just under 6 percent by 1914, and the case
of the protectionists became weak. They failed to persuade Congress to
grant large-scale tariff cuts but sowed the ground for economic
liberalization and expansion in foreign policy. Consular branches became
active promoters of U.S. goods, the Department of Commerce provided
necessary information on foreign markets, and the Federal Reserve Act of
1913 authorized foreign branch banking. Furthermore, export expansion had
made its mark abroad, as American goods carved such inroads into European
markets that the British, by the turn of the century, began to protest
U.S. competition. The presidents of the times thought systematically about
foreign affairs, of which tariff policy was increasingly deemed a part.

President William McKinley, noted for the high tariff in his name,
actually pursued moderate customs policies. Like his successor, Theodore
Roosevelt, he had denounced free trade as a threat to prosperity and even
morality. Indeed, the champion of the Republican Party's
high-tariff policy, Representative and Senator Justin Morrill of Vermont,
had equated protectionism with patriotism. McKinley preached
Republican-style tariff nationalism, as GOP leaders did until 1932, by
arguing that duties were simply fees to be paid by foreigners to have the
privilege of competing in the U.S. market. Tariffs protected wages,
guarding the country from invasion and plunder from abroad. Yet McKinley
also became a believer in reciprocity.

Backing trade liberalization, McKinley vowed to boost exports without
surrendering domestic markets. Thus, the president welcomed a provision of
the Dingley Tariff of 1897 that included European nations, along with
Latin Americans, in reciprocity treaties. Including Europe indicated
America's new confidence abroad and willingness to negotiate as an
equal with the great powers and, in particular, lay aside more than a
century of bitterness toward England. Consistent with the temper of the
post–Civil War period, McKinley appointed a former congressman, now
an elderly diplomat, John Kasson, to negotiate treaties with the European
powers. Kasson's treaties were controversial, as many industries
protested that production at home was sacrificed to the interests of
exporters who would benefit from lower duty rates in Europe. Neither
McKinley nor Roosevelt actively promoted the treaties in a
protectionist-run Congress, and the agreements died in the Senate. There
was more success with the commercial treaty that bound Cuba to the United
States after the Spanish-American War. In return for a guaranteed sugar
and tobacco market in the United States, American business, as well as the
military, persuaded Congress to liberalize trade. The result,
unfortunately for Cuba, was American domination of the island for a half
century afterward.

Regardless of the imperial nature of the Cuban arrangement, tariff policy
turned toward internationalism. The Republicans considered tariff
revision, realizing that protectionism undercut American power abroad and
led to conflict with the Europeans. Just before his assassination in
September 1901, McKinley proclaimed that nations could no longer be
indifferent toward each other. He urged reciprocity treaties and cuts in
unnecessary tariffs. The new president, Theodore Roosevelt, who viewed
reciprocal arrangements as "the handmaiden of protection,"
let the Kasson treaties die in the Senate but pursued preferential
agreements with Cuba and the Philippines. Such a tariff policy would not
only bind them economically to the United States but also promote
political stability. Roosevelt advocated reciprocity as a form of aid to
Cuba, a nation strategically located close to America and within the
approaches to the Panama Canal, then under construction. Reciprocity, he
believed, would encourage its independence from Europe. In regard to the
Philippines, Roosevelt pushed tariff reciprocity to ensure that this
territory, so essential to American trade and security interests along the
route to the China market, remained hinged to the United States. He stood
pat at first in 1905 when Germany threatened a tariff war over
America's unwillingness to grant unconditional MFN status to the
nation's exports. Recognizing Germany's importance in the
European balance of power, the president backed the eventual accord in
1907 that rejected protectionism and allowed for reductions in tariffs of
concern to Germany.

The Taft administration showed even less concern than Roosevelt for the
tariff's effect on domestic politics and more sensitivity to
foreign concerns. Such neglect of protectionism helped William Howard Taft
lose his reelection bid in 1912. This former governor of the Philippines
had backed tariff-free treatment for that territory's sugar and
tobacco. The Republican Congress aided him by enacting the Payne-Aldrich
Tariff of 1909, which facilitated reciprocal tariff bargaining with other
nations by giving Taft discretionary authority to impose a minimum duty
rate if he found no evidence of discrimination. The State Department
discovered that the new authority was no inducement to France and Germany
to relax restrictions against the United States. But Taft did forge a
reciprocity treaty with Canada in 1911, only to be rebuffed by his own
party, despite his argument that Canada would become a neocolonial
"adjunct" of the United States, dependent on U.S.
manufactures and banking while assuming the role of mere commodity
supplier. The GOP rejected this argument of self-interest, retreating to
traditional protectionism. Canadians did, however, buy the view, and as a
result, they turned the Liberal Party from power out of a fear that U.S.
continental expansion, fueled by freer trade, would overtake the British
Empire in Canada.

Protectionism was on the defensive, however. As an antimonopolist and
internationalist, Democratic candidate Woodrow Wilson won election in 1912
on a low-tariff policy. He counseled that Americans could compete
effectively abroad but that a high-tariff policy hamstrung the State
Department in its ability to conclude reciprocity treaties. The
Underwood-Simmons Tariff Act of 1913 sharply reduced duties and added a
provision that gave the president authority to forge reciprocity treaties.
The act did not lead to equal treatment for American exports, but it did
confirm Wilson's intention of using trade liberalization as a
panacea to economic distress and a means to maintain peace. World War I
delayed Wilson's tariff internationalism.